US carmakers reach for the jumper leads. US auto sales dropped a massive 37% in November to their worst level in more than 26 years, adding to fears the industry has further to fall and increasing the urgency of carmakers grovelling for a new multi-billion bailout in Washington. The latest data adds to fears GM and Chrysler could fall over without a significant cash injection. GM’s US sales fell 41% and Chrysler’s tumbled 47%. Toyota’s sales tumbled 34%, while Nissan’s dropped 42% and Honda’s fell 32%.

GM may need up to $US15 billion over the next couple of months to survive (it wants $US18 billion in total for 2009); Chrysler needs $US7 billion just to survive to the end of this month (and presumably into the first quarter and beyond). In a worst case scenario, these two could get $US22 billion by the end of February: if conditions are really as bad at October and November, Ford would want to draw on its $US9 billion line of credit, so it could be $US31 billion all told to these struggling giants.

The three car giants’ revamp plans reveal a combination of terrible finances, brinkmanship and cunning sleights of hand. You have to wonder how executives paid millions of dollars a year allowed it to come to this. The three companies want a total of $US34 billion when Congress has offered $US25 billion. But in reality the demands are more than that because Ford wants a $US9 billion revolving line of credit and GM wants a $US6 billion revolving line of credit. Because they are revolving, it means they are constantly drawn and repaid and the actual sum borrowed can be much more than the upper limit.

Reading the statements in detail you find that GM and Chrysler seem to be terminal because they want so much money so quickly — at least $US17 billion by the last week of February and possibly up to $US31 billion if Ford is forced to use its money as well. GM wants $US4 billion by the end of this month to avoid collapse, Chrysler wants $US7 billion for the same reason. GM wants another $US4 billion in early January to keep it in the black and then $US2 billion by the end of February.

Now these are either desperate, nearly broke companies, or this is gamesmanship. With the Detroit mob, you can never be sure. American politicians who start hearings tonight and on Friday night in Congress aren’t sure and there’s talk that a decision won’t come until next week, or the week after, just before Christmas. (Yes Virginia, there is a Santa?) Chrysler warned it needs $US7 billion before the end of the month, while GM needs $US4 billion, both to avoid running short of cash to pay suppliers and other bills in January. — Glenn Dyer and Andrew Crook

Local carmakers in reverse. The Federal Chamber of Automotive Industries (FCAI) reported a 22% plunge in new car sales last month said today. 71,647 new cars and trucks were retailed last month, down 20,434 on the 92,081 sold in the same month last year. 79,105 units were sold in October, so the fall was 11% month to month. The FCAI said the November result left the year-to-date market down by 2.9% compared to the same period in 2007.

That’s a doubling in the fall from October to November. Cars are probably the second biggest purchase we make after a house and the slump is another sign of the rising levels of caution among consumers, despite the tax cuts and the interest rate cuts to the end of November. — Glenn Dyer

Chapter 11 blues: The rise in bankruptcies among larger and larger non-financial groups in the US is starting to reach worrying levels. Three listed companies in as many days this week have fallen over. No wonder credit insurance costs are soaring to their highest level ever and the prospect of bond defaults among junk rated securities and among investment grade securities, is predicted to reach near record highs by ratings groups.

The Financial Times reported;

A fresh sign in the deterioration of credit market conditions emerged on Wednesday when one of the most closely watched barometers of sentiment broke through an important threshold.

The Markit iTraxx Crossover index rose through 1,000 basis points for first time since it was created in 2004, implying a record number of companies are on the verge of default because of deepening financial and economic problems.

In fact there’s something of a trend in some of these failures: the involvement of private equity groups and their supposed ability to restructure and revitalise companies has been shown to be a crock.

But this is the US economy, and it’s debt that is grabbing more groups.

  • Airlines were the first to go in the US with a spate of failures in late 2007 and in the first half as oil prices rose sharply and sank many of the weak.
  • Retailers were also hit with Linen N Things, Mervyns, Steve and Barry’s and several smaller groups failed. Linens had been owned by private equity and had been left with a big debt burden. Some of these retail groups are in the process of liquidating because there are no buyers and Chapter 11 wasn’t an option.
  • America’s second biggest electricals retailer, Circuit City surprised 10 days ago when it went into Chapter 11 to protect itself against falling into liquidation: it was a direct casualty of the slump in retailing and especially high tech consumer products.
  • Also on Monday Hawaiian Telecom Communications Inc sough court protection after its financial state worsened. Carlyle Group (a Washington based private equity group) and its investors had invested $US425 million in Hawaiian Telecom and borrowed almost $US1.2 billion to buy the company from Verizon in 2005. In its Chapter 11 filing Hawaiian listed $US1.4 billion in assets and $US1.3 billion in debts.
  • A day after this failure Carlyle, which has already closed its Polish office, revealed that it is cutting 100 jobs, or 10% of its staff.
  • Then overnight Bally Total Fitness, which operates 349 gyms across America, filed for bankruptcy protection. Bloomberg said it was a little more than a year after emerging from court protection with financing from hedge fund firm Harbinger Capital Partners (which also has a big stake in Fortescue Metals and Murchison Metals). — Glenn Dyer

US Job losses accelerate: The US labor market shed jobs at a breakneck pace in November amid deteriorating economic conditions, surveys showed Wednesday, signaling the world’s largest economy is diving into the depths of recession. In an ominous sign for the holiday shopping season, the private sector lost 250,000 jobs last month, the largest decline in six years, according to the ADP National Employment Report. — AFP

Young men up to their eyeballs: Young men in New South Wales, Victoria and Queensland are up to their eyeballs in debt, according to new figures. A Dun & Bradstreet study reveals young men are bucking stereotypes usually associated with their female peers and have been increasingly wielding the credit card and defaulting on household bills. But blokes about to feel the fallout from a tougher economy, rising prices and the global financial crisis and may be struggling to buy their grandparents a present come Christmas time, the study said. — Andrew Crook